Under the European energy crisis, the high economy of European households' light storage has been recognized by the market, and the demand for light storage has opened up explosive growth. Residential electricity price contract mechanism, the newly signed contract electricity price in 2023 has risen significantly, the average price of electricity is more than 40 euros /MWh, an increase of 80-120% year-on-year, we expect the next 1-2 years to continue to maintain high prices, light storage rigid demand is clear. Germany is exempt from household PV VAT and income tax, Italy's household reserve subsidy policy is declining, the favorable policy continues, the German household reserve yield can reach 18.3%, and the subsidy payback period can be shortened to 7-8 years. The long-term independent energy trend, in 2021, the penetration rate of European household storage is only 1.3%, and the growth space is broad, and the industrial and commercial and large storage markets are also growing rapidly. According to Soowu Securities estimates, the demand for new energy storage capacity in Europe in 2023/2025 is 30GWh/104GWh, the same increase in 2023 is 113%, and the CAGR in 2022-2025 is 93.8%.
In 2022, the energy crisis electricity prices soared, promoting the outbreak of energy storage demand
High growth of household energy storage, up 56% year-on-year in 2021. In 2021, the installed capacity of European household energy storage capacity of 1.04GW/2.05GWh, an increase of 56%/73%, respectively, is the core driving source of energy storage growth in Europe.
In 2022, the European energy crisis, high electricity prices, and high demand for European households. In 2022, affected by the Russia-Ukraine conflict, Russia's natural gas supply has been significantly reduced, leading to a surge in energy prices in Europe, which has pushed up wholesale electricity prices in Europe all the way, and the average monthly wholesale electricity price in the EU has reached a peak of more than 400 euros /MWh, an increase of 346% over the same period in 21. Under this fuse, the high economy of European household light storage has been recognized by the market, and the demand for light storage has opened an explosive growth. We expect that by 2022, European photovoltaic will reach more than 50GW, achieving double growth, and European energy storage will reach about 13GWh, which will triple.
Europe needs to accelerate its transition to energy independence
The root cause of the European energy crisis is the high dependence on external energy, and the fundamental solution is to achieve independent
energy. Europe is highly dependent on traditional fossil fuels, with 97% and 60% dependence on oil and gas in 2021, according to BP, with most of
the energy coming from Russia. Therefore, under the conflict between Russia and Ukraine, the reduction of external energy supply directly leads
to energy shortage in Europe. In the long run, only the establishment of independent energy can ensure the stability of energy supply in Europe.
New energy resources such as photovoltaic wind power have good endowment and fast speed, and energy independence can be gradually
achieved with the development of energy storage.
Renewable energy replacement accelerated in 2022. Under the energy crisis in 2022, the economy of renewable energy led by photovoltaic is
highlighted, and the penetration rate is accelerated. At the end of November, solar's share of EU power generation increased from 5% in 2021 to 7%,
an increase of 2.1pct, while wind power increased from 14.5% in 2021 to 16%, an increase of 1.5pct.
The power system is highly marketized, and the impact of rising electricity price on each link is quite different
The EU power system is highly market-oriented, and the participants in the flow of electricity rights include: 1) power plants are responsible for the supply of electricity, which can be signed over-the-counter transactions with energy institutions through distributors (such as PPA, forward), or online sales of electricity through electricity trading markets (such as day-ahead markets), and some suppliers have power plant property rights (such as Vattenfall); 2) Suppliers supply power to consumers by signing power supply agreements with end consumers, which is highly competitive.
A portion of the power generated by the plant is sold through PPA prices. Power plants sign 10-20 year power supply contracts with downstream energy suppliers in the form of power purchase agreements (PPA). In 2022, due to energy shortage in Europe, wholesale electricity prices rose sharply, PPA electricity prices also showed an upward trend, 2022Q3 average photovoltaic PPA electricity price of 68.6 euros /MWh, the same ring increased 53.1%/14.7%, the average wind power PPA electricity price of 73.5 euros /MWh, the same ring increased 50.9%/11.1%, under the energy crisis, The revenue of electric power plants increased significantly, and the development of new energy was intensified.
The cost of natural gas has skyrocketed, and marginal pricing has led to higher electricity prices
Pricing model of European power system: unified pricing of power supply at supply and demand equilibrium point. The EU electricity price is
currently using a marginal pricing mechanism, that is, under the current power demand, the marginal cost of each power generation energy is
cleared one by one according to the quantity supplied (photovoltaic, wind power, etc., with lower power generation costs are preferentially calculated),
and finally the power supply price corresponding to the supply and demand balance point is unified pricing (example: Coal and electricity supply
balance point, then the price of coal and electricity for all participating power supply facilities unified pricing). The advantages of this mechanism are:
under normal circumstances, it can greatly improve the rationality of energy supply, encourage the development of low-cost renewable energy, and
effectively reduce wholesale electricity prices under the continuous increase of the proportion of renewable energy generation at low power
Marginal pricing mechanisms are difficult to manage risks, and electricity prices are distorted in extreme cases. In 2022, due to the contraction
of Russian natural gas supply, natural gas prices rose all the way, the highest price rose to 339 euros /MWh, an increase of 334% from the beginning
of the year, in the marginal pricing model, resulting in European energy prices continue to rise.
The EU issued the electricity price intervention policy and returned the excess income to consumers
Under the European model of marginal pricing, electricity prices have risen sharply, and the cost of purchasing new energy power is much lower
than the price of selling electricity, and thus obtain excess profits. In this context, Europe has introduced two measures: 1) Market Revenue CAP (CAP)
of €180: for renewable energy (solar, wind, hydro, etc.) generation companies, a cap on market revenue of €180 /MWh for the period from December 1,
2022 to June 30, 2023; 2) Windfall profits tax/Solidarity tax: For non-renewable energy (oil, gas, coal, etc.) power generation companies, any excess
profits realized in 2022-2023 will be taxed at least 33%. According to the EU, the proceeds of the solidarity tax should go to energy consumers,
energy-intensive companies, etc.
Residential electricity price contract mechanism, 23 years of new contract electricity prices increased significantly
In Europe, the long-term association mechanism of residential electricity price has been adopted, and the newly signed residential electricity price contract has increased significantly in 23 years. Take Germany as an example: residents generally sign a 1-2 year electricity supply contract with the service provider, and the price is negotiated by both parties. Our statistics show that the new contract is generally signed from October to November every year, and the contract price of residential electricity price in 2022 and before is stable at 20-30 euros /MWh, so the sharp rise of wholesale electricity price in 2022 has not been transmitted to the residential end, but the new contract electricity price in 2023 has risen sharply, and the average price of electricity is above 50 euros /MWh. With an increase of 80-120% year-on-year, we expect high prices to continue for the next 1-2 years.
The increase in residential electricity prices is due to the increase in the price of electricity sold, and Germany has reduced taxes and fees to reduce the burden of residents. Take Germany as an example, the German residential electricity price is derived from the sum of electricity sale price, grid cost, EEG surcharge, electricity tax and other fees. The increase in wholesale electricity prices in 2022 has promoted the increase in the contract price of residential electricity prices, and the German residential electricity price has reached 64.19 yuan /MWh in November 2022. In addition, Germany has abolished the EEG surcharge in July 2022, and it is still possible for European countries to gradually reduce or eliminate relevant taxes and fees to reduce the burden of residential electricity.
Subsidies: Germany, Italy and Austria continue to advance, and Sweden, Poland and Spain are making rapid progress
Germany, Italy and Austria main light storage installation country continues to promote. Germany, Italy and Austria will continue to introduce new subsidy policies in 2022 to stimulate the continued growth of households' demand for light storage; The UK currently has no subsidy policy for energy storage, but due to the country's high electricity prices, residents are more willing to install energy storage. We expect that by 2023, Germany, Italy, Austria and the United Kingdom will remain in the top four European households in terms of installed capacity.
Emerging markets are fast and likely to catch up. Sweden and Poland benefited from the continuous high subsidies of their governments for household reserves, and light reserves developed rapidly. The Spanish government actively promotes the support policy for light storage, and the current increase is faster, but the installed base is smaller than Sweden and Poland, and the current market share is small.
Subsidies - Germany: exemption of household photovoltaic VAT, income tax, Berlin extended household storage subsidies
The country is exempt from household photovoltaic VAT and income tax. In early December 2022, the German government passed the tax relief policy on light storage: 1) In the tax year 2022, the electricity generation income tax will be exempted for household photovoltaic systems that meet the requirements; 2) All the household photovoltaic energy storage systems put into operation from 2023 onwards are exempt from the value-added tax (VAT) generated in the process of procurement, import and installation, which is 19%, and the VAT is directly deducted when the installer offers, the supporting energy storage system can also enjoy, but if the installation is separate (including installation), the household storage does not enjoy the VAT exemption.
Berlin households reserve subsidy of 300 euros /kWh, the maximum subsidy of 15,000 euros! In September 2022, Berlin extended SolarPLUS subsidies to 2023 rounds, and continued to support household photovoltaic storage with a high level of 300 euros /kWh, with a maximum subsidy of 15,000 euros; For apartments or small businesses, the subsidy is 65% of the cost of installing energy storage, for medium-sized enterprises, 55%, and for large enterprises, the maximum subsidy is 30,000 euros. Note: SolarPLUS only subsidizes the maximum energy storage capacity portion of the PV power /1.2 (12kw PV corresponds to 10kwh energy storage), and requires a self-use ratio of more than 50%.
Subsidies - Italy: The policy of household reserve subsidies has declined, but the amount remains high
In 2012, Italy introduced the Superbonus program, which aims to improve the energy efficiency of Italian residential and non-residential units and reduce the consumption of fossil fuels and natural gas, with subsidies capped at 65%. In July 2020, the subsidy will be upgraded to 110% (total cost subsidy for house decoration), and the main improvement measures include replacement of air conditioning equipment and replacement of insulation layer. The installation of the optical storage system is an additional improvement measure, and the single subsidy for the optical storage system is capped at 48,000 euros per unit, €1000/kWh. The amount of the subsidy will be amortized into the next five years for personal tax deduction, and an additional 10% will be used to pay for technology expenses (early consultation, subsequent transfer, etc.). In November 2022, the new policy was released: the 110% decoration subsidy was reduced to 90% in 2023, and the decline was to 70%/65% in 24-25 years. The amount of the subsidy will be spread over the next four years for tax deduction. In addition, the 110% subsidy can still be maintained in cases where the notice of commencement or the application for authorization of demolition and reconstruction works has been submitted before November 25, 2022, or the construction of the villa has been completed by September 30, 2022, accounting for at least 30% of the total. The New Deal for villa housing added applicable terms, limited to taxpayers who meet the following criteria: 1) the object of the project is the taxpayer's regular housing; 2) The per capita income of the taxpayer family is less than 15,000 euros/year.
The rate of return of household reserves is high, and the fluctuation of electricity prices does not change to strengthen the economy
Case: Assuming that the system consists of a 5kW inverter and a 10kWh energy storage battery, the price of the system is 16,600 euros for the sum of the inverter, battery, components and installation costs, and the installation price is 13,400 euros after taking into account the VAT exemption. According to the calculation of Soochow Securities, under the assumption of 45 euro cents electricity price, German households will have a yield of 18.3% when they use up the storage system (considering 19%VAT rebate), and the recovery cycle is 7-8 years; If only PV is installed, the IRR drops to 12.4% and the payback period takes 13-14 years. Overall, the economy of light storage in Germany is very strong, and we expect that with the decline in the cost of light storage systems in the future, the demand for household storage will continue to increase!
The penetration rate of household light storage is low and the growth space is broad
Europe can develop a wide space of light storage roof, household use of 394GWh, industrial and commercial 581GWh! Household: According to the data of Eurostatistical Office, there are 192.7/41 million households in the EU/Germany in 2021, assuming that 25% of the independent roof (and suitable for installation), the EU/Germany has 4928/10.26 million roofs that can be installed with light storage, assuming an average of 10kwh per household, and the penetration rate of EU/Germany household storage in 2021 is only 1.3% and 4.8%. Eu/German households still have 394.2/82.1GWh of untapped space, respectively. Industry and commerce: in 2021, Europe has a total of 23.23 million industrial and commercial households, assuming 25% of the installed photovoltaic roof, an average of 100kwh per household, the EU industrial and commercial energy storage has 580.75GWh of developable space, and the EU penetration rate is only 0.08% by 2021.
2023 European energy storage installed capacity 30GWh, 22-25 years installed CAGR=93.8%
Under the energy crisis in Europe, residents have formed awareness and consumption habits of high economic efficiency of household light storage, and the penetration rate continues to increase. We believe that the European household storage market will continue to grow rapidly in 2023, reaching more than 23GWh, and the new market of industry and commerce will break out rapidly, and the new installed capacity will reach 1.7GWh in 2023, doubling year-on-year growth. With the reduction of optical storage costs in 2023, the European ground PV and large storage market is gradually opening up. To sum up, we expect that the total demand of the European energy storage market in 2023 will be 30GWh, corresponding shipments will be 70GWh, the installed/shipped capacity will increase by 113%/95%, the installed/shipped capacity will be 104GWh/178GWh by 2025, and the installed/shipped CAGR will be 93.8%/70.4% from 2022 to 2025.
Household storage industry high barriers, brand channels for the key to competition
The core barrier to household energy storage is the adaptation and brand channel advantage of energy storage inverters. As a small energy storage battery, the integrated core technology requirements are not high, and its core competitiveness is product design and market development (the key is market brand and channel construction).
1) Product design: It is mainly the adaptation of the energy storage inverter (countries/regions have different requirements) and customized product design for customer needs, for example, the BMS in the energy storage system and the energy storage inverter need to be adapted, the energy storage inverter controller communicates with the BMS through the CAN interface to obtain the status information of the battery pack, which can realize the protective charge and discharge of the battery to ensure the safe operation of the battery.
2) Brand accumulation & channel construction: According to PVmagazine, the biggest factor that consumers consider when buying energy storage batteries is brand reputation, consumers rarely know the source of the battery and parts used, and the quality of big brand products has been guaranteed by market verification, so it is still dominated by mainstream big brands. In addition, the overseas channel certification cycle is complex and relatively long, and the channel construction and maintenance of energy storage manufacturers and downstream integrators and installers is particularly important.